Step-by-Step Series A Funding Prep Guide: Financial Documents & Services Needed
What is Series A Funding?
A Series A funding round is the name that is typically given for a company’s first significant round of venture capital financing and the second stage of startup financing. The name refers to the class of preferred stock sold to investors in exchange for their investment.
Just like seed funding, Series A financing is a type of equity-based financing meaning that a company secures the capital from investors by selling the company’s shares. However, this funding can come with anti-dilution provisions to shield investors from their investment potentially losing value and voting rights.
Not every company needs to raise Series A, but if a company wants to raise significant funds from a VC, then it will be beneficial to know how to be prepared. At this point in the business lifecycle, companies have already raised a sum of money from the pre-seed and seed rounds, it is now time for larger investors to step in.
What Are The Objectives of Series A Financing?
The main purpose of a Series A funding round is to provide the means to take a business to the next level of growth and development to set them up for success. As many founders have succeeded in raising Series A, many others have failed.
The common objectives in this round are to reach goals in product development and attract new talent in anticipation of growing the team. In this stage, a company expects to continue the growth of its business to attract investors for future larger rounds of funding that believe in and see the vision of the business. The rule of thumb here is that capital is provided to companies that already generate revenues but are still in that pre-profit stage.
What Are The Prerequisites?
It is important that the business is generating at least $100,000 a month in revenue by the time you are looking to start raising your Series A round of funding. Ideally, you should be on track to grow 3 times year over year because investors will not be up for unsustainable growth.
One of the most important things that you need to get across to investors is the explanation of the market size and the opportunity within that market. Research must be done, and findings should be accurately addressed in the pitch deck.
The valuation of a start-up is also an essential part of Series A financing. Since it is beyond the seed stage, companies are able to provide more information used to make educated investment decisions.
What Financial Documents Will Be Needed?
- Pre-Funding Prep
- Capital Raise Roadmap (next 5 years)
- Product Development Roadmap (next 5 years)
- Business Valuation
- Financial Projections (next 5 years)
- Cash Balance
- Financial Statements (last 3 years)
- Balance Sheet
- Income Statement
- Cash Flow Statement
- Signed/dated by independent auditor.
- Financial Models (current/previous yr.)
- Cost to Acquire Customer (CAC)
- Customer Lifetime Value (LTV)
- Customer Churn Rate
- Pitch deck (10-12 slides)
- Transaction Proposal (12+ slides)
- Funding / Transaction Due Diligence
Funding / Closing
- Post-money Equity Allocation
- Liquidation Preference
- Investors Rights Agreement
- Investor Rights Agreement
- Right of First Refusal
- Participation Rights
- Corporate Governance
- Information Rights
- Stock Purchase Agreement
- Share price
- Number of shares
- Dispute resolution provisions
- Agreement on compensation for unforeseen costs related to fundraising.
- Regulations & Outcomes regarding transfer of shares
- Representation & Warranties
- Burn Rate Analysis (6 month/12 month/24 month)
- Waterfall Chart / Waterfall Analysis
- Investor Reports
- Post-Money Valuation / Post-Closing Valuation
How NOW CFO Can Help
As you can see, there is a large number of financial documents and services that will be needed in order to obtain a Series A funding round. It will become increasingly apparent that a CFO will be needed to guide you through these preparation services. NOW CFO has years of expertise guiding companies through these processes and rounds of funding throughout the business lifecycle.
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